People will bid as much as they can afford while achieving a positive ROI. If you can't, someone who's earning more dollars per click will, and they'll get the slot instead. If 100 clicks generates $100 in gross profit for the company with the best customer LTV, nobody's going to bid more than $1 per click. That $1 per click already factors in the discount due to fraud. If all the clicks were real, qualified visits, they'd have earned more than $100 per 100 clicks, and would be able bid more than $1 per click. As long as there are enough people participating in the auction, it will naturally account for the quality of the traffic, whatever the reasons behind that quality may be.
OTOH, doesn't this require perfect efficiency and for all bidders to know perfectly their ROI, etc.? Any holes, unintentionally irrational behavior, etc. and the fraud "leaks" into the price, right?
So, for instance, any "unprofitable" advertising on behalf of any participants would seem to automatically cause the fraud to be reflected in the price.
Based on personal experience, I would guess that there's a pretty long tail of advertisers who never realize an ROI while spending a considerable sum seeking it!
Even those that eventually profit likely spend a good bit of money ramping up, all the while paying for fraud in the process and helping to support a fraud-inflated CPC overall.
